3. How are economic decisions made? As the resources in the factors of production are finite and as people have unlimited wants, this creates a problem. We cannot have everything we want so we have to make choices. As we saw in Chapter 2: Personal Income and Expenditure, individuals often have to do without one item in order to buy another. This is called the opportunity cost. Businesses and governments face similar difficult choices due to the scarcity of resources. When a person, business, or government is faced with two options, the option they do not choose is the opportunity cost. Opportunity cost refers to the thing that is done without when choosing another option. These choices have to be made by individuals, businesses and governments.
Pair work
Read about the choice that has to be made at Traction Bikes and discuss your answers to the questions.
Sales at Traction Bikes
Sales at Traction Bikes are expanding and there are more deliveries to make. The business is faced with a choice between buying three small delivery vans or one larger delivery truck. Both options cost the same. If they choose the three vans, then the truck is the opportunity cost. If they choose the truck, then the three delivery vans are the opportunity cost.
1. List two advantages and two disadvantages of choosing the three vans.
2. List two advantages and two disadvantages of choosing the truck. 3. Which would be the better choice for Traction Bikes, three vans or one truck? Give reasons for your answer. 4. Compare your answers across the class.
